corporate farming vis-a-vis contract farming in … with contract farming in india. key words:...

International Journal of Management and Social Sciences Research (IJMSSR) ISSN: 2319-4421 Volume 1, No. 3, December 2012

i-Xplore International Research Journal Consortium www.irjcjournals.org

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Corporate Farming vis-a-vis Contract Farming in India: A

Critical Perspective

Pranaya Kumar Swain, Asst. Professor, Humanities & Social Sciences, NISER-Bhubaneswar

Chandan Kumar, Co-founder and Partner, Castling Consulting, Bangalore

C. Prudhvi Raj Kumar, Deputy General Manager, T.I.M.E. Pvt. Ltd.

ABSTRACT The hunky-dory of Indian economy notwithstanding, the

agriculture sector has been lagging behind the GDP

growth rate hovering around the region of 2%. Despite

the Government‟s effort to protect the marginal farmers

by providing them the „right‟ price for their products, the

suicide rate of the farmers has been shooting up. This

indicates that all is not well in the Indian agriculture. In

the recent times India has seen the growth of contract

farming with companies directly getting into a contract

with the farmers and providing them “fair” price to their

produce. This is leading to corporate farming as a natural

extension. A few initiatives have been taken in this regard

with big corporate houses stepping in. The introduction of

this type of farming and the involvement of the corporate

might provide the much needed acceleration to the sector.

The paper provides a critical analysis of the scenario of

corporate farming and its economic viability in

comparison with contract farming in India.

Key Words: Corporate Farming, Contract

Farming, Fair Price, Indian Agriculture

Introduction

India, predominantly an agricultural economy, producing

more than 250 million tons of food grain annually (PIB,

2012), has vast tracts of cultivable land spanning nearly

184 million hectares (MOFPI, 2012). Agriculture

contributes to nearly quarter of our GDP, providing

employment to nearly 60% of the population (Jha, 2006).

Major part of the farmers engaged belongs to the small

and marginal holding categories, with their share growing

steadily over the years. Typically characterized by

household labour, production for consumption, stock and

sale in that order, these farms naturally achieve very low

productivity

Value Chain

Figure: The process matrix showing the fairly linear phase of agriculture production, processing and reselling considering

users, activities and details (Barth, et.al., 2006).

Production

• Players: Farmeres, Suppliers

• Farmer purchases agri inputs; plants and cultivates food; crop is harvested and transpoted to mandi

•Due to lack of information outdated machinery, seeds and techniques are being used.

Market

• Players: Farmers, Commission agents

•Commission agents bid for the crops; government plays a role in fixing the minnimum price

• In certain cases it takes days before the famer receives his money

Resale

• Players: Commission agents, processors

• Processor places bid for buying the crops from the commission agents.

• Processor has no contact with the farmer hence no method of quality control

Processing

• Players: Processors

• Food is transferred to the plants where they are processed, packed and sent to retailers

•A good distribution chain is required

Retail

• Players: Retailers

• They are the ones who sell the food products to the end users and generate revenues



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The stakeholders The key players in the value web, from seed to sale, are as

follows:

Suppliers: Supply of various inputs to the farmers is

generally done by the government and other private

corporations. While the former is known for its cheaper

but less quality inputs, the latter provides good quality

stocks but might arm twist the farmers.

Farmers: Though the farmer plays the central role, he is

the least powerful in the value chain. In spite of

government‟s aid and price protection, farmers are

generally at the mercy of both suppliers and commission

agents. Razor thin margins and use of outdated

technologies make it difficult to make any sort of

sustainable progress.

Commission Agent: The middle man between the farmers

and the processors were originally instituted to ensure fair

prices to the farmers and to save them from the processors.

However, in recent times it has been the agents who have

been taking advantage, often low balling the farmers and

charging the processors a premium.

Processor: Buying the crops from the agents, they

process, pack and ship the food from their processing

plants. Traditionally barred any direct contact with the

farmers, they consequently lack control over quality and

have little influence over what crop the farmers grow.

Distributor: They are responsible for delivering the

processed food to retail stores and city- based markets as

well as small markets and bazaars in the rural areas.

Reseller: These ranges from large super markets in cities

to small open air shops in the villages. Though organized

retail chains are emerging, the small stores continue to

dominate the retail market in India.

Government: The Indian government has several aid and

subsidy programs in place to assist farmers, however many

of them are expensive and actually result in excessive debt

for farmers. Under the guidance of the NAFED, the

government also enacted a number of strict policies aimed

at protecting the farmer from exploitive organizations.

However, these policies are now being repealed as they

have proven detrimental. (Barth, et. al., 2006)

Bottle Necks for Indian Agriculture

The biggest issues being faced by the Indian agriculture

sector are the low growth rate and the low productivity.

Most of the Indian farmers are of “marginal” nature. They

have illiterate, poor and have very small plots of land.

The objective of their farming is mostly to cater to the

need of their family, stock for the future and then sell if

surplus. They do not have exposure to the latest

technologies and use the age old farming methods.

The quality of seeds used and the farm equipments are

outdated and do not provide the desired productivity. The

farmers do not have enough capital to buy the required

farming equipments or arrange for the irrigation facilities.

Most of these farmers depend on the undercover tenancy

lands and hence can not go to the banks for loans. The

local bankers charge them very high interest rates (above

25%). This renders them incapable of using the latest

equipments or investing in good irrigation facilities. They

have to depend solely on the government for all this.

Policies and reforms The agriculture policy followed by the government after

the independence can be broadly divided into three phases.

Parameter \

Policy:

Pre green

revolution

Green

revolution

Post green

revolution

Time phase 1950s – mid

1960s

Mid 1960s –

1980

1980- present

Land

holding

pattern

Extremely

skewed

8% of the

farmers held

53% of the

lands

A large

population was

landbased poor

Not skewed

Brought

uncultivated land

under cultivation

Soil & water

conservation

through DPAP

and DDP

Debate on land

rules

Transparency in

land records

through

computerization

Thrust of

the policy

Implementation

of the land

ceiling act

Major irrigation

project,

abolition of

landlordism,

security of

farming

Aimed at

increase in yield

Provided the

farmers with

research,

marketing, input

supply, credit,

price support

and technology

Increase in

subsidies and

support

Decline in

public sector

spending in agri

infra met by

the farmers



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Though the ceiling act solved the problem of “land based

poor”, it created a number of small farmers with small

holdings of land and these farmers had too little resources

to implement various technologies required to increase the

productivity. India faced severe food crisis in spite of the

active government support as productivity remained very

low and It was the green revolution initiated by the then

Prime Minister Lal Bahadur Shastri which aimed at

increasing the yield. It was a form of contract farming

providing the farmers with the necessary technology,

credit, supplies and price support. This phase saw the

agricultural yield of the country shooting up greatly.

The post green revolution, our industrial policy headed

steadily towards de licensing and deregulation, while our

agricultural policy lacked a specific direction in terms of

the policy implementation. From the government, though

there was a considerable increase agricultural support and

subsidy expenses, the spending on agricultural

infrastructure decreased greatly. An increase in the

investments by the farmers during the same time

compensated this decrease infrastructural spending. The

market driven growth was largely characterized by the

farmers diversifying in non food grain output like milk,

fishery, poultry, vegetables, fruits etc.

National Agricultural Policy (NAP) The National Agricultural Policy (NAP) document aims to

attain output growth rate in excess of 4 percent per annum

in agriculture sector based on efficient use of resources. It

seeks to achieve this growth in a sustainable manner and

with equity. Some of the reforms the government has

initiated are: (a) liberalization of land lease market (b)

proposal to change regulation to promote contract farming

and private markets. Contrary to the general perception it‟s

the small farmers who account for the bulk of land leases.

The main effects of leasing being illegal are: (a) a

significant portion of the cultivable land remains unused,

and (b) the small farmers have to raise money from the

money lenders at a much higher rate. With the legalizing

of this, these two things will be taken care of.

Liberalisation of external trade requires policies to deal

with volatile nature of international prices. Impact of

volatility on imports can be regulated through appropriate

tariffs but maintaining export poses serious problem. Price

stabilisation funds for exports can help to maintain export

at the times of low international prices. Incentive to

agriculture should be provided by promoting competitive

trade. These incentives should be consistent with demand

side factors. Due to lot of regional variations, national

level terms of trade often conceals regional story. There is

a need to monitor TOT at regional level and to ensure that

agricultural incentives promote regional equity. (Chand,

2002)

Contract Farming

Contract Farming (CF) can be defined as a system for the

production and supply of land based and allied produce by

farmers/primary producers under advance contracts, the

essence of such arrangements being a commitment to

provide an agricultural commodity of a type, at a specified

time, price, and in specified quantity to a known buyer

(Singh, 2007).

Contract farming is an agreement that involves

producers/farmers, intermediaries, processing and or

marketing firms, to provide the farm produce at

predetermined prices and quality, at specified places, after

a specified duration. The contracts could be of three types

namely : (i) procurement contracts under which only sale

and purchase conditions are specified; (ii) partial contracts

wherein only some of the inputs are supplied by the

contracting firm and produce is bought at pre-agreed

prices; and (iii) total contracts under which the contracting

firm supplies and manages all the inputs on the farm and

the farmer becomes just a supplier of land and labour. The

relevance and importance of each type varies from product

to product over time and these types are not mutually

exclusive In fact, CF can be described as a halfway house

between independent farm production and

corporate/captive farming and can be a case of a step

towards complete vertical integration or disintegration

depending on the given context . CF is known by different

variants like centralised model which is a company farmer

arrangement; outgrower scheme which is run by the

government/ public sector/joint venture; nucleus-

outgrower scheme involving both captive farming and CF

by the contracting agency; multi-partite arrangement

involving many types of agencies; intermediary model

where middlemen are involved between the company and

the farmer; and satellite farming referring to any of the

above models (Singh, 2007).

Contract Farming in Thailand Ab initio, domination by middle men between companies

and farmers has been a striking feature of Thai contract

system. The state plays a vital role in policy front and also

ensures private sector participation by a variety of ways.

Apart from the co-ordinating role, and the local authority

support, it also reallocated a 250 million baht deposit in

Bank for Agriculture and Agricultural Cooperatives

(BAAC). BAAC joins with a private firm for loan issuing

and deducted the loan and interest from farmers‟ sale

receipts. The main reasons for the failure of contract

farming for farmers were the heavy reliance of companies

on government support. The rigidity of the term of

contract, which was purposively set forth for fairness to

both the firms and farmers, was another reason due to

which the firms lost flexibility in their management. The

farmers needed time to adapt to new crops which usually

came with new technology. When new crops did not

provide desirable yield and return, farmers were

discouraged and shifted back to their old crops. (Singh

2004)



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Source : Singh, 2005, Economic & Political Weekly

Tri-Partite Contract Farming

Source : Singh, 2004 Economic& Political Weekly

Bi-Partite Contract Farming

Source : Singh, 2004 Economic& Political Weekly

Emergence/ History

Contract Farming has its historical roots during the time

when the Europeans first introduced indigo and opium

cultivation in the Bengal Region, under the East India

company rule. ITC‟s contracts with the farmers of Andhra

Pradesh for growing Virginia tobacco during the 1920s,

emergence of seed companies during the 1960s, the green

revolution during the 1970s and finally the tomato farming

contracts by Pepsico in Punjab during the 1990s can be

quoted as some of the milestones in the emergence of

contract farming in India. Several cash crops like tea,

coffee, rubber, indigo etc are introduced in various parts of

the country, mostly through a central expatriate-owned

estate surrounded by small out growers‟ model. Since the

Green Revolution, Government started the largest contract

farming model, through which it subsidized fertilizers,

provided new hybrid variety seeds, provided training and

also guaranteed the procurement by State agencies with a

minimum support price. In India, contract farming model

had mixed results, due to some failures on the part of one

of the stake holders and poor design of contracts. In India,

contract farming by the corporate sector has so far been

more of a case of buy back and input supply, except for

some exceptions in states like Punjab, where the state is

actively involved in some of the contracts.

Some cases of Contract Farming in India

The Pepsi Case: Punjab could not maintain the

momentum in agricultural growth generated by Green

revolution by the early 1980s. The State government-

appointed Johl Committee (1986) recommended

diversification within farming away from wheat-paddy

rotation to the extent of 20 per cent

of area in favour of fruit and vegetable, fodder and

oilseeds crops. Following gradual opening of

industrial sector, Pepsi was allowed

for contracting and processing of tomatoes.

Pepsi brought in the necessary inputs, partnered with

PAIC and Voltas, and maintained prompt payments, which

resulted in the emergence of corporate farming in Punjab,

in a big way.

Pepsi could not get the trust of the farmers fully, as the

contracts were entirely tilted towards it. Also, the

farmers were too dependent on Pepsi, which had the right

of refusal, while the farmers were penalised on default.

Pepsi could not maintain it for long and sold it off to HLL.

Rallis India Case: The company provides all inputs,

technical support and finance to registered growers for a

specific crop and facilitates the sale of produce at

reasonable prices. The company follows a consortium

approach. It has tied up with banks like ICICI and SBI and

with buyers of produce like HLL, Picric and Cargill. The

system is run through a network of 10 Rallis Kissan

Kendras (RKKs) across the country.



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Quad-Partite Contract Farming

Source : Singh, 2004 Economic& Polotical Weekly

State-led Contract Farming

Source : Singh, 2004 Economic& Polotical Weekly

State led Contract farming in Punjab: The Punjab

government in October 2002 (for the rabi season) aimed at

reducing 10 lakh hectares under wheat-paddy rotation over

the next five years and implemented contract farming

jointly by the Department of Agriculture, Punjab Agro

Foodgrains Corporation (PAFC, subsidiary of PAIC) and

private companies. This was the first time that the state

government became the intermediary between companies

and farmers.

The PAFC not only provided seeds purchased from

reputed companies like Adventa India and Pro-Agro, and

extension to contract growers, also promised to buy back

the entire produce at pre-agreed prices through a tripartite

agreement involving PAFC, the seed company through its

dealer, and the farmer. But, by the harvesting season for

the contracted crops, the programme had run into rough

weather.

Though contract farming has existed in Punjab for more

Than a decade now, this was the first time that the state

government became the intermediary between companies

and farmers.

Other experiences in India: Seed contracting widely

prevalent in india burdens the growers with costs like

seeds, cultivation, monitoring, transport, wastages, grading

and packaging. The growers also bear the risks like low

germination, reduced yield, poor quality, and rejections.

But the default rates of contract growers have been low as

they are assured grain price for seed crop at least and

yields are better than grain crops.

Contract farming in India is done by MNCs, domestic

corporates in many areas. Tomato cultivation in Punjab,

Haryana and chandigarh, Mushrooms in Haryana,

Sunflower cultivation in Andhra Pradesh and Karnataka,

Fruits and vegetables in Tamilnadu, Maharashtra and

Andhra Pradesh can be given as prominent examples of

contract farming. (Singh, 2007)

Examples of success stories which do not entirely fit in to

the definition of contract farming would be Amul &

NDDB for milk procurement, the Sugarcane cooperatives

in Maharashtra, green leaf satellite out growers to the

South Indian tea manufacturing industry, the prawn aqua

culture farmers of AP & the rapid spread of poultry

projects in West Bengal, Tamilnadu, Maharashtra, Andhra

Pradesh & Punjab. ( sinha,PM. 2001)

Contract Farming can bring in higher efficiency, greater

returns for the stake holders, positive spill over effects due

to technology transfer (Pepsi case) etc. But, there can not

be a single blue print or CF model for all situations across

the diverse states of Imdia. Even for individual farmers, it

is not contract per se but the relationship it represents

which is crucial as the divergence between the two may

prove crucial in determining the development of CF as an

institution. It brings about a market focus in terms of crop

selection by Indian farmers and reduces urban migration.

It also flattens the seasonality in employment by giving a

steady source of income to individual farmers, there-by

creating self-reliance. (singh, 2006)

The other side of Contract Farming Most of the contracts are completely biased towards the

buyer company, with the farmers becoming completely

dependent on the contracting party. Crops being focused

for non-local markets related to the processing company,

the farmer loses his local market and is effectively tied to

the contractor. With higher capital borrowed from the

contracting agent, the farmer is again tied to the

contractor. Private companies don't go for any long-term

agreement with farmers. Often companies flout the terms

stated in the contract, some times using the fine print to

back out of predetermined prices."

Because of their myopic view, the contracting firms

generally end up worseningthe natural resource crisis as

most of the contracts are short term (one or two crop



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cycles). The firms tend to look out for new growers and

lands after squeezing out the fertility of the local

resources, particularly land and water. The firms are only

interested in their profits and do not care for the costs of

effects like over-exploitation of groundwater, salination of

soils. Effects like soil fertility decline, and pollution are

externalised so far as the firm is concerned.

Stake holders – Companies For a corporate, the objective of contract farming is to

integrate the supply chain to ensure timely availability of

quality and quantity of materials. It also reduces the

procurement cost for them by eliminating the middlemen.

Building of relationships of trust with farmers through

company reputation rather than marketing gimmicks is

crucial.

Rationale behind CF: CF can be seen as a less risky

alternative to corporate farming. Further, in India,

supermarket chain growth including FDI in retail,

international trade and quality issues will help in the

spread of CF across crops and regions. Contract Farming

is now considered to be a corrective to market

imperfections and serves a useful purpose in its own

limited sphere. (Rani BN, 2007)

Farmer Selection: Firms are inclined large farmers due of

their capacity to produce better quality crops using the

efficient and business-oriented farming methods, the large

volumes of produce which reduces the cost of collection

for the firm, their capacity to bear risk in case of crop

failure, and various services provided by these large

producers like transport, storage, etc. On the other hand,

being associated with smaller farmers gives access to

cheaper labour, government incentives.

Advantages: The key resource constraint ie land

availability can be met through contract farming. Also, it

reduces the uncertainty in supply, with consistency in

quality and quantity. (Rani BN, 2007)

Problems: Main problems are the diversion of input

materials to other uses and the default of the farmer. Also,

the farmer gets discontented due to reasons like one

sidedness of the contract, ill effects of technology give etc

and wont be interested to continue. Land availability and

socio-cultural constraints are also some things to worry

about. (Rani BN, 2007)

Stake holders – Farmers Contracts can provide farmers with access to a wide range

of managerial, technical and

extension services that otherwise may be unobtainable.

Advantages: A lot of benefits like appropriate technology

access, skill transfer, access to credit, access to reliable

markets come with the contract farming. It also gives the

provision of inputs and production services, with a

guarantees and fixed pricing structure. (Rani BN, 2007)

Problems: In many cases, the contracting company will

be a monopsony in that locality, with huge bargaining

power in their hands. Farmers generally bear most of the

risk, which in case of Unsuitable technology and crop

incompatibility ruins him. There is also scope for

corruption and for Manipulation of quotas and quality

specifications. (Rani BN, 2007)

Stakeholders – Government – APMC Act According to the government, the APMC Acts of different

states had become a stumbling block for hypermarkets

who wish to deal with the farmer directly, and scale up

operations. The Model APMC Act, sought to amend the

APMC Act to permit private and corporate bodies to

establish a marketing network for agriculture produce.

(Business Standard, Nov 02, 2004) The APMC act

permitted marketing of produce only through regulated

markets, and no direct sale is permitted.

Legal reform process for contract is being accelerated by

the Indian government with Model APMC Act, which now

permits setting up of private markets, selling of produce

by growers outside the APMCs (regulated markets),

setting up of direct markets, specialized commodity

specific markets, regulation and promotion of contract

farming, provision for agencies and measures to promote

quality, standards, and alternative markets, and public-

private partnerships to facilitate more and better linkage

between firms and farmers. The Model APMC Act has

both mandatory and optional provisions in a model

contract farming agreement wherein mandatory provisions

specify who can undertake contract farming activity,

contract specifications, liabilities, farmer asset indemnity,

and dispute resolution. The optional provisions are about

farm practices, insurance, monitoring of crops, role of

farmer bodies, and support to the contract farmers. It also

makes it mandatory to register contract farming activity

with a local authority. Further, futures trading has been

permitted in 54 commodities (Landes and Gulati, 2004).

So far a number of states have either amended their

respective APMC Acts in tune with APMC Model Act or

have started the process for the same.. Even the Central

Government has adopted coercive methods to force State

governments to amend their APMC Acts.

Corporate farming Corporate farming refers to direct ownership or leasing in

of farmland by business organisations in order to produce

for their captive processing requirements or for the open

market. When it is done for captive purposes, it is referred

to as captive farming as well, though most of the time, the

two terms are interchangeably used (singh 2006)



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Data Source: http://agcensus.nic.in/document/analysis01natasg.htm

2000-01 Agriculture Census Data of India

Corporate Farming Cases:

Jamnagar Farms Pvt. Ltd. – Subsidiary of Reliance

Industries

Jamnagar Farms, the 1700 acre agri-forestry, agri-

horticulture farm set up in previously arid land near the

RIL refinery, uses the recycled wastewater from the

refinery for irrigation purposes. Though initially taken up

as part of the plan to improvement environment, the

company has now become a profitable proposition and has

prepared a roadmap for expanding farm production in

other states.

Discussions are at an advanced stage for setting up such

farms in Andhra Pradesh, Karnataka and Maharashtra.

With the investment in Jamnagar having touched Rs 10

crore during the past three to four years, sources said the

foray in the agri sector was expected "to breakeven in

seven years with an expected return rate of 30 per cent''.

Apart from mango which will constitute the bulk of the

produce, 29 other products have been identified for the

purpose. Jamnagar Farms currently owns Asia's biggest

mango orchard spreading over 450 acres. (The Hindu,

March 18, 2008)

Field Fresh: A 50:50 venture by Bharti Enterprises

and Rothschild:

With the idea of establishing a R&D enabled farm, Bharti

Enterprises in partnership with Rothschild acquired around

300 acres of land in Punjab. The focus is on growing fruits

and vegetables using the latest technology. Distribution of

fresh fruits and vegetables is done to the European Union,

Eastern Europe, South East Asia, Middle East and the CIS

countries. It has already sent the first consignment of

vegetables to the UK included okra, bitter gourd and chilli.

This venture has helped the local farmers raise their

monthly income. If we take the case of a family with two

acres of land leased out to Field Fresh, the rent from the

lease is Rs 30,000 per year (Rs 15,000 per year per acre).

Suppose two members from the family work for the

company, their income will be Rs 57,600 (at Rs 80 per day

per worker). Thus the over all income of the family works

out to be Rs 87,600. In the absence of such a farming

model the average gross output of such a farm in Punjab is

Rs 50,000 (without any cost deduction).

(Singh, 2006)

Other side of Corporate farming

Looking from the social perspective, corporate offering

money for land to a marginal farmer might be an offer he

can not refuse. Though this offer might be very tempting

in the short term, it might end up leaving the farmer

jobless and landless in the long term. Other stakeholders

of the land like women or children might be exposed to the

risk of losing the source of their livelihood. To avoid any

such situation the government might bring a law which

allows only leasing of the land and not complete sale (a

variation of the land ceiling law).

The fertility of land is degradable and there is always the

risk of the corporate not doing enough to maintain the

fertility (especially towards the end of the lease). The

farmer (or lesser) might be the loser in this case.

Corporate farming brings in various type of risks such as

mismanagement, lack of understanding between the

management and workers, neglect of field improvement

etc. In fact, the reasons attributed to the failure of

corporate farming in Iran are mismanagement due to lack

of relevant experience, inflexible management, neglect, no

contingency planning, under- capitalisation and poor

labour relations.

Tenancy

With the incidence of tenancy reforms, share of tenancy

decreased from 23.34% during the year 1952-53 to 10.7%

in 1961-62 and then to 7.18% in 1982.Reduction in the

area under tenancy was because of two diverse factors.

First, the law that conferred ownership rights to erstwhile

tenants. And second, evictions and resumptions by the

land owners, first during the 1960s and the then in the

wake of green revolution when profits from self

cultivation of land increased, may also explain the decline

in area under tenancy.

The banning of tenancy and various lease restrictions has

only pushed the phenomenon underground, rendering the

tenants‟ position even more precarious. Also the new

agricultural technology has substantially changed the

nature and extent of tenancy. (Saxena, N. C. 2002.)

The Indian government's National Agriculture Policy

policy envisages that "private sector participation, through

contract farming and land leasing arrangements, will allow

accelerated technology transfer, capital inflow and an

http://agcensus.nic.in/document/analysis01natasg.htm



67

Data Source: http://agcensus.nic.in/document/analysis01natasg.htm

2000-01 Agriculture Census Data of India

assured market for crop production, especially of oilseeds,

cotton and horticultural crops." (Report by Crisil for IBEF

on Agriculture )

Under the Indian Constitution, land reform is the

responsibility of individual states so while the federal

government provides broad policy guidelines, the nature

of land reform legislation, the level of political will and

institutional support for land reform and the degree of

success in implementing land reform have varied

considerably from state to state with the agenda remaining

unfinished in most states. (Chatterjee, 2002)

The government policy on tenancy varies from state to

state in India with some states allowing it while it is illegal

in certain states. However, prohibition has given way to

concealed tenancy deals with around 15-25% of the

tenancy deals in India being illegal and covert. The states

of Gujarat, Madhya Pradesh, Karnataka, and Maharashtra

have recently allowed agribusiness firms to buy and

operate large land holdings for R&D, and export-oriented

production purposes. And, even states like Punjab are

planning to raise the ceiling on holdings in order to

encourage large-scale farming for making farming a viable

proposition in the state.(Singh 2006)

Most popular forms of lease markets are share cropping

and fixed money or fixed produce; fixed kind or cash type

has been gaining currency suggesting that lands with

stable yields have been preferred for leasing-in. As the

size of the farm increases, the owners are tilting towards

fixed money lease, which is the feature of corporate

farming. This is due to two reasons. 1) Deeper pockets of

larger farmers, who wants to get all the benefits from his

land. 2) Capital constraint for smaller farmer who can not

pay to the owner and can only offer the share of the

produce. In the case of the small farmer, what ever extra

effort he puts in for better crop will be shared by the

owner. So, this might hamper the productivity of the farm,

with the farmer getting disillusioned. Corporate farming,

one step ahead of the large farmer leasing in scenario, can

bring in economies of scale and assure stable inflows and

outflows.

The demand for liberalization of agricultural tenancy has

come to the fore with the liberalization of economy. The

business houses have been the biggest proponents of these

reforms, corporate farming is a must for stable production

and export performance (Singh, 1994). Many of the

farmers who have committed suicide recently had rented

in land, but not being legal tenants, had to borrow money

from the moneylenders and could not repay the usurious

interest rates (Deshpande 2003). So, the small marginal

farmers will benefit greatly if tenancy is made legal, as at

present, the tenant has no legal preotection and cannot

raise money from financial institutions.

Waste lands In order to achieve a higher growth rate for the agriculture

sector, the government has been looking for partnership

with the corporate houses. With 17.45% of the land in

India being wasteland in 20031, there lies huge opportunity

to strengthen this partnership. The government of Gujarat

has recently offered wastelands up to 2000 acres for

horticulture and biofuels for 20 year lease to big corporate

houses and resourceful farmers.

Tamil Nadu Case:

In order to make all possible use of wasteland Tamil Nadu

has started the wasteland development program. Under

this, the government lends out fallow and degraded land to

the corporate sector and co-operative societies to be

developed for agricultural activities. The government

aspires to be a „facilitator‟ between the famers and the

corporate houses. The programme will cover cultivation

of cash crops including cotton, fruits and vegetables,

flowers, spices and plantation crops, among others, with

forward linkages to agri-business, storage and markets.

Government needs to consider inviting corporate houses

for leasing these waste lands for longer durations like 25-

30 years. This might involve contribution of labour by

farmers and sharing of revenues between the corporate and

the farmers.

Similar initiatives can be taken up by other states as well

but for this system to work fine the government will have

to come up with comprehensive laws in order to handle

any dispute. An efficient management of the wasteland

can give India the target 4% growth rate of the agriculture

sector.

1 http://dolr.nic.in/WastelandStateArea.htm




68

Graph: The area and percentage of waste land plotted

state wise in India.

(Data Source: http://dolr.nic.in/WastelandStateArea.htm;

Department of Land resources)

From the graph we can see that the hilly states like Jammu

and Kashmir, Himachal Pradesh, Manipur, Sikkim,

Uttaranchal, Arunachal Pradesh etc have high percentage

of wasteland. This might be due to two major reasons. The

hilly terrain in these areas makes it very difficult to use

them for cultivation. Secondly, we observe that most of

these areas are near the country border. Regular presence

of army and war threats makes it impossible to cultivate

on this land. As far as the hilly areas not very close to the

border are concerned models similar to the tea plantations

done in the northern parts of West Bengal can be

introduced. Corporate can be invited to explore the

possibility of plantation farming in these areas.

The fertile areas of the Ganga basin like Punjab, UP, Bihar

and West Bengal have very low level of wastelands. Due

to the fertile nature of the land, these lands are widely used

for cultivation.

Comparison table

Parameter Private Farming Co-operative Farming Contract Farming Corporate Farming

Ownership Held by private farmer Held by private farmer Held by farmer Held by the company

Risk Sharing Entirely born by farmer Collectively born by

group of farmers

Mostly by farmer as

most contracts

are one-sided

Entirely by the

company

Ease of Credit Difficult among the 4

alternatives

Slightly easier than

private farming

Easier as contract can be

showed as collateral

Easier for the

company as banks see

lesser risk

Capital Has to be infused by the

farmer completely

Group of farmers rake in

money and invest

collectively

Depending on the

contract terms , farmer,

firm invest

Entirely infused by the

contracting firm

Farm –firm flow Many Intermediaries Same as pvt farming, but

higher bargaining power

due to collectivity

Very less/no middle men

between farmers and

firm

No intermediaries as

firm directly takes the

produce

Market Access Uncertain and difficult

to get a reliable route

Better than private

farming due to higher

bargaining power

Reliable access,

assuming no default by

the firm

Fool proof access as

farming is done by the

firm itself

Technology Relatively

unsophisticated

Can try new technology

through collective funds

Access to new

technology inputs from

the firms

Employs latest

technologies for higher

productivity

Government

Role

In credit /seed inputs, in

mandis and sale (MSP)

In credit /seed inputs, in

mandis and sale (MSP)

In facilitating contracts,

contract laws, credit

issuing

Leasing laws and

facilitating firms‟

entry

Tenancy laws Affect the leasing Affect the leasing Affect farmer leases Affect the firm

Sustainability Hard for marginal

farmer to remain

profitable

Relatively better than

private farmer, with

collective resources

Short term in nature,

affected by government

policies

Long term in nature,

affected by

government policies

Social Effects No dramatic changes

from the status quo of

the society

Unity, self sufficiency

among the farmer

community

1)Skewed contracts lead

to arm twisting of small

farmers.

Indiscriminate

corporate farming

leads to the

http://dolr.nic.in/WastelandStateArea.htm



69

2)Corporate might end

up dictating what to

grow and what to eat

suppression of smaller

players/farmers in the

market

Economic

Effects

Marginal farmer might

end up in vicious debt

cycle endlessly

Gives a lot of bargaining

power and a great boost to

the earnings

Farmers might become

too dependent. Market

Imperfections due to

one-sided contracts

Concentration on

power to few MNCs if

used indiscriminately.

Good use of waste/

unutilized lands.

Environmental

Impact

Fertility can be

maintained if used

judiciously

Fertility can be

maintained if used

judiciously

Fertility of lands might

be squeezed out due to

myopic view of firms

Fertility may be

maintained, due to

long term orientation

of firm

Politics Involved Have become a tool for

votes, affected by the

wavering decisions of

different governments

Will be welcomed by all

the sections of the society

Government facing

opposition for APMC

model act, brought out

for helping contracts

Might face a lot of

opposition for

implementation

Conclusion The small and marginal farmer, is not able to invest in new

technology and hence increase his productivity. His low

investment capability leads to low produce, which due to

lack of sufficient market access, gives him meagre

income, which again leads to low investment. Thus, he is

trapped in a vicious cycle of debt. Cooperative farming

can help him achieve economies of scale, but the market

access problem is not solved through that completely,

though his bargaining power increases through this model.

Contract farming addresses the problem of market access

but in many cases, the contracts are too one sided. If the

government takes proper care in regulating the terms of

contract, in order not to make them too skewed, higher

efficiencies and hence greater societal welfare can be

achieved. Indiscriminate opening up of agricultural sector

to corporate companies can impact the social and

economic equilibrium of the country very badly.

Corporate farming can be very suitable for utilizing the

waste and unutilized cultivable lands of India. Proper steps

have to be taken by the government for making most of

the corporate farming model, that brings in technology,

efficiency and sustainability.

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Data Sources

[1] Agricultural Census Data:


State wise Waste land Statistics Department of Land

Resources: http://dolr.nic.in/WastelandStateArea.htm

[2] Press Information Bureau, Food grain Production in

2011-12,

http://pib.nic.in/newsite/erelease.aspx?relid=82433,

Govt of India, 2012

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http://mofpi.nic.in/images/File/FICCI%20Data/INDIA

N%20FOOD%20PROCESSING%20INDUSTRY/IND

IAN%20AGRICULTURE%20INDUSTRY%20SOME

%20FACTS.pdf

http://nird.ap.nic.in/res03_4.html

http://www.thehindubusinessline.com/2006/03/19/stories/2006031902270200.htm

http://www.thehindubusinessline.com/2006/03/19/stories/2006031902270200.htm

http://www.arc.unisg.ch/org/arc/web.nsf/1176ad62df2ddb13c12568f000482b94/43cf0caeed566faac12571d30061daac/$FILE/India%20Symposium_IBEF_Sectoral%20Reports_Agriculture.pdf




http://planningcommission.nic.in/reports/articles/ncsxna/leasing.htm

http://planningcommission.nic.in/reports/articles/ncsxna/leasing.htm

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http://www.globalfoodchainpartnerships.org/india/Papers/SukhpalSingh.pdf

http://www.ficci.com/media-room/speeches-presentations/2001/sep/sep_agri_sinha.htm

http://www.ficci.com/media-room/speeches-presentations/2001/sep/sep_agri_sinha.htm

http://agmarknet.nic.in/amrscheme/modelact.htm#Addendum

http://agmarknet.nic.in/amrscheme/modelact.htm#Addendum

http://www.thesouthasian.org/archives/2005/meet_the_indian_farmer.html

http://www.thesouthasian.org/archives/2005/meet_the_indian_farmer.html


http://dolr.nic.in/WastelandStateArea.htm

http://pib.nic.in/newsite/erelease.aspx?relid=82433

http://mofpi.nic.in/images/File/FICCI%20Data/INDIAN%20FOOD%20PROCESSING%20INDUSTRY/INDIAN%20AGRICULTURE%20INDUSTRY%20SOME%20FACTS.pdf




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